A debut Sfr250m 10 year covered bond for Valiant Bank on Wednesday, and planned regular issuance, will help the Swiss regional bank stabilise and diversify funding and mitigate disadvantages versus state-supported compatriots, according its CEO and its CFO, who highlighted the unique deal’s “Swiss-ness” as an important factor for investors.

Valiant, a retail and SME bank, is the first among smaller Swiss banks to enter the covered bond market, and the new issue is the first covered bond to be issued under Swiss law and secured by a Swiss guarantor.

UBS and Credit Suisse, Switzerland’s big two, have both discontinued issuance off contractual/structured programmes, which were used for international issuance and established under international law.

Domestic covered bond issuance has to date continued only through Switzerland’s two central issuing institutions, Pfandbriefzentrale der schweizerischen Kantonalbanken and Pfandbriefbank schweizerischer Hypothekarinstitute, who are the only entities that issue Swiss Pfandbriefe according to Swiss legislation and through which banks – including Valiant – refinance their mortgages.

Markus Gygax, CEO of Valiant, told The CBR that the bank decided to issue its own covered bonds, alongside continued use of Swiss Pfandbriefe, in order to stabilise and diversify its funding and also to better match its assets and liabilities.

“Another reason we did this is that we do not receive state support, as the Kantonalbanks do,” he said. “The issuance of covered bonds will help us reduce our funding costs, compared to what we have done through senior unsecured, and this will help us and mitigate that disadvantage.”

The bank first announced its plans to enter the covered bond market in November of last year, and earlier this month said the deal was imminent.

“We wanted have a good initiation for this new product, and we think in that sense it went well,” said Ewald Burgener, CFO of Valiant. “It created a lot of attention in the Swiss market – we had roadshows with over 100 participants, which is quite a lot for a Swiss regional bank.”

Leads BNP Paribas (Suisse) SA, Zürcher Kantonalbank and Valiant launched the December 2027 issue on Wednesday morning with an indicated spread of mid-swaps plus 9bp to 12bp and an indicated coupon of 0.375% for a minimum size of Sfr150m.

A Sfr250m (Eu214m) deal was ultimately priced at 8bp over mid-swaps and with a coupon of 0.375% to yield 0.33%.

“We aimed to issue at least Sfr150m, and we also wanted to price with a single-digit spread, and we were able to achieve both those objectives,” said Gygax.

The final spread was seen as offering a pick-up of around 6bp versus Swiss Pfandbriefe of the central issuing institutions and a pick-up of 43bp over the sovereign. Valiant said its issuance represents an attractive alternative for institutional investors in the highly concentrated triple-A segment of the Swiss Bond Index.

The deal was distributed only to Swiss investors, and, Burgener said, achieved “good diversification” and met strong demand.

“We think one big difference is the Swiss-ness of this product,” he added. “It is clearly differentiated from the older international programmes set up under international law, and this is a point that is maybe important for Swiss investors.

“We saw a lot of demand for this deal that we couldn’t meet now, and we look forward to future issues.”

The new issue has been assigned a provisional Aaa rating by Moody’s. Valiant said the bond will be traded on the SIX Swiss Exchange starting 5 December.